Henan Liliang Diamond Co.Ltd(301071)
Internal audit management system
Chapter I General Provisions
Article 1 in order to improve the corporate governance structure of Henan Liliang Diamond Co.Ltd(301071) (hereinafter referred to as “the company”), standardize the economic behavior of the company, safeguard the legitimate rights and interests of investors, clarify the responsibilities of internal audit institutions and personnel, give full play to the role of internal audit in strengthening internal control, improving operation and management and improving economic benefits, and realize the standardization and institutionalization of internal audit. This system is formulated in accordance with the Audit Law of the people’s Republic of China, the provisions of the National Audit Office on internal audit, the articles of association and other laws and regulations, and in combination with the actual situation of the company.
Article 2 the term “internal audit” as mentioned in this system refers to an independent and objective confirmation and consultation activity conducted by the company’s internal audit institutions or personnel on the effectiveness of internal control and risk management, the authenticity and integrity of financial information and the efficiency and effect of business activities.
The “auditors” mentioned in this system refers to the personnel engaged in audit work in the company, including the full-time auditors of the audit department and the personnel transferred or borrowed from the non audit department for short-term audit work.
Article 3 the auditee mentioned in this system refers to the internal institutions of the company, all offices directly under the company at home and abroad, wholly-owned or holding subsidiaries at home and abroad and their branches directly under them (including holding subsidiaries) and the relevant responsible personnel of the above institutions.
Article 4 the term “internal control” as mentioned in this system refers to the process in which the board of directors, the board of supervisors, senior managers and other relevant personnel of the company provide reasonable assurance to achieve the following objectives:
(I) comply with national laws, regulations, rules and other relevant provisions;
(II) improve the efficiency and effect of the company’s operation;
(III) ensure the safety of the company’s assets;
Article 5 the company shall establish and improve the internal audit system to prevent and control the company’s risks in accordance with the relevant national laws, regulations, rules and the provisions of this system and in combination with the industry and production and operation characteristics of the company. The internal audit system shall be examined and approved by the board of directors.
Article 6 the board of directors of the company shall be responsible for the establishment, improvement and effective implementation of the internal control system, and important internal control systems shall be reviewed and approved by the board of directors.
Chapter II Internal Audit institutions and personnel
Article 7 the company shall establish an audit committee under the board of directors and formulate the working rules of the audit committee. All members of the audit committee shall be composed of directors, of which independent directors shall account for more than half and act as the convener, and at least one independent director shall be an accounting professional.
Article 8 the company sets up an internal audit department to inspect and supervise the authenticity and integrity of the company’s financial information and the establishment and implementation of internal control system. The internal audit department is responsible to the audit committee and reports to the audit committee.
Article 9 the head of the internal audit department must be full-time, nominated by the audit committee and appointed or removed by the board of directors. The company shall disclose the educational background, professional title, work experience of the person in charge of the internal audit department, and whether there is any relationship with the controlling shareholder and actual controller of the company (if listed).
The audit department shall allocate full-time auditors with necessary professional knowledge, corresponding professional ability and good professional ethics to engage in internal audit.
Article 10 auditors shall possess the following basic professional abilities:
(I) master internal audit standards and internal audit procedures;
(II) be familiar with internal audit content and internal audit operation technology;
(III) be familiar with the company’s production and operation process and relevant economic and business knowledge;
(IV) understand the company’s management systems and financial accounting principles.
In addition to the above conditions, the person in charge of the audit department shall also have a bachelor’s degree or above or an intermediate professional and technical title related to accounting, audit or business management, and more than 3 years of relevant working experience in audit, accounting and law.
Internal auditors should have certain political quality, professional ability, audit experience and good interpersonal skills to ensure effective internal audit.
Article 11 the internal audit department shall maintain its independence and shall not be placed under the leadership of the financial department or work together with the financial department.
All internal organs of the company, holding subsidiaries and joint-stock companies with significant influence shall cooperate with the internal audit department to perform their duties according to law and shall not hinder the work of the internal audit department.
Article 12 internal auditors shall keep corresponding professional competence through follow-up education.
Article 13 auditors shall exercise their functions and powers in accordance with the company’s system. The audited department or individual shall provide relevant materials to auditors in time, and shall not refuse, obstruct, destroy or retaliate.
Article 14 auditors must be impartial, objective, diligent, confidential and competent. Internal auditors must audit according to law, be loyal to their duties, adhere to principles, be objective and fair, and perform their duties honestly. They shall not abuse their power, engage in malpractices for personal gain, or neglect their duties.
Article 15 when performing various audit tasks, auditors shall have a high sense of professional responsibility and must correctly exercise their functions and powers. They shall not deliberately create difficulties for the auditee, abuse their power for personal gain, nor neglect their duties, procrastinate and waste their work; It is not allowed to yield to the will of others, conceal the truth, and complete the audit task with high quality and efficiency.
Article 16 the company’s internal audit adopts a withdrawal system. When carrying out internal audit, internal auditors shall withdraw if they have an interest in the audited object or audit matters.
Chapter III work contents and responsibilities
Article 17 when guiding and supervising the work of the internal audit department, the audit committee shall perform the following main duties:
(I) guide and supervise the establishment and implementation of internal audit system;
(II) review the company’s annual internal audit work plan;
(III) supervise and urge the implementation of the company’s internal audit plan;
(IV) guide the effective operation of the internal audit department. The internal audit department shall report its work to the audit committee. All kinds of audit reports, rectification plans and rectification conditions of audit problems submitted by the internal audit department to the management shall be submitted to the audit committee at the same time;
(V) report to the board of directors on the progress and quality of internal audit and major problems found;
(VI) coordinate the relationship between the Audit Department of the company and external audit units such as accounting firms and national audit institutions.
Article 18 the audit department is responsible for the formulation of the company’s audit rules and regulations, and participates in the research and formulation of the company’s relevant rules and regulations. Prepare the company’s internal audit work plan.
Article 19 the audit department shall perform the following main duties:
(I) check the rationality and effectiveness of the internal control system of each subsidiary company and have a significant impact on the implementation of the internal control system of each subsidiary company;
(II) audit the accounting data and other relevant economic data of the company’s internal institutions, holding subsidiaries and joint-stock companies with significant influence, as well as the legality, compliance, authenticity and integrity of the reflected financial revenue and expenditure and relevant economic activities, including but not limited to financial reports, performance letters, disclosed predictive financial information, etc;
(III) establish and improve the key links and possible areas of anti fraud, and assist in the process of anti fraud inspection;
(IV) report to the audit committee at least once a quarter, including but not limited to the implementation of the internal audit plan and the problems found in the internal audit;
(V) be responsible for organizing the business research of internal audit and the training of auditors;
(VI) assist the superior and external audit institutions in the audit of the company;
(VII) other audit matters assigned by the board of directors and the audit committee of the company.
Article 20 the audit department shall submit the internal audit work plan for the next year to the audit committee two months before the end of each fiscal year, and submit the internal audit work report of the previous year to the audit committee two months after the end of each fiscal year.
The audit department shall audit important external investment, purchase and sale of assets, external guarantee, related party transactions
Article 21 the internal audit department shall inspect the deposit and use of the raised funds at least once a quarter and report the inspection results to the audit committee in time.
If the audit committee considers that there are major violations or risks in the management of the raised funds of the company, or the internal audit department fails to submit the inspection result report in accordance with the provisions of the preceding paragraph, it shall report to the board of directors in time. The board of directors shall report to the exchange and make an announcement (if listed) within 2 trading days after receiving the report of the audit committee. The contents of the announcement include major violations, major risks, consequences that have been or may be caused and measures that have been or will be taken in the management of raised funds.
Article 22 the audit department shall carry out the audit work on the basis of business links, and evaluate the rationality and effectiveness of the implementation of the internal control plan related to financial reports and information disclosure according to the actual situation.
Article 23 internal audit shall generally cover all business links related to financial reports and information disclosure in the company’s business activities, including but not limited to: Sales and collection, procurement and payment, inventory management, fixed assets management, fund management, investment and financial management, human resources management, comprehensive information disclosure management of information system, etc.
The audit department can adjust the above business links according to the industry and production characteristics of the company.
Article 24 the audit evidence obtained by the personnel of the audit department shall be sufficient, relevant and reliable. The auditors of the company shall clearly and completely record the name, source, content, time and other information of the audit evidence in the working paper.
Article 25 during the audit work, the internal auditors shall prepare and review the audit working papers in accordance with the relevant provisions, and timely sort out and file the audit working papers after the completion of the audit project. Article 26 internal auditors shall maintain a rigorous working attitude, objectively reflect the problems found when the materials provided by the audited department are true and complete, and report to the board of directors in time. If the report is untrue, it shall bear the audit responsibility. If the audited department fails to truthfully provide all the materials required for the audit and affects the auditors’ judgment, the relevant personnel shall be investigated for responsibility.
Chapter IV specific implementation of the work
Article 27 the audit department shall implement appropriate review procedures in accordance with relevant regulations, evaluate the effectiveness of the company’s internal control, and submit an internal control evaluation report to the audit committee at least once a year.
The evaluation report shall state the purpose, scope, conclusions and suggestions for improving internal control of the review and evaluation.
Article 28 the scope of internal control review and evaluation shall include the establishment and implementation of internal control related to financial reports and information disclosure.
The audit department shall focus on the integrity, rationality and effectiveness of the internal control system related to large non operating capital transactions, foreign investment, purchase and sale of assets, foreign guarantee, related party transactions, use of raised funds, information disclosure and other matters.
Article 29 for the internal control defects found in the review process, the audit department shall urge the relevant responsible departments to specify the rectification measures and rectification time, conduct the follow-up review of internal control, and supervise the implementation of the rectification measures.
The head of the audit department shall timely arrange the follow-up review of internal control and incorporate it into the annual internal audit work plan.
Article 30 if the audit department finds major defects or risks in internal control during the review process, it shall report to the audit committee in time.
If the audit committee considers that there are major defects or risks in the company’s internal control, it shall report to the board of directors in time. The report shall include: the major defects or risks in the internal control, the consequences that have been or may be caused, and the measures taken or to be taken.
Article 31 the audit department shall conduct audit in time after the occurrence of important foreign investment. When auditing foreign investment, we should focus on the following contents:
(I) whether the examination and approval procedures for foreign investment are performed in accordance with relevant regulations;
(II) whether the contract is concluded according to the approved contents and whether the contract is normally performed;
Investment risk and investment return, and track and supervise the progress of major investment projects;
(IV) in case of entrusted financial management matters, attention should be paid to whether the company has delegated the approval power of entrusted financial management to the company’s directors or management, whether the trustee’s integrity record, operating status and financial status are good, and whether special personnel are assigned to track and supervise the progress of entrusted financial management;
(V) if securities investment matters are involved, attention should be paid to whether the company has established a special internal control system for securities investment, whether the investment scale affects the normal operation of the company, whether the source of funds is its own funds, whether the investment risk is beyond the company’s acceptable range, whether it uses other people’s accounts or provides funds to others for securities investment, and whether independent directors express opinions.
Article 32 the audit department shall conduct audit in time after important asset purchase and sale events occur. When auditing the purchase and sale of assets, we should focus on the following contents:
(I) whether the purchase and sale of assets comply with the approval procedures in accordance with relevant regulations;
(II) whether the contract is concluded according to the approved contents and whether the contract is normally performed;
(III) whether the operation status of the purchased assets is consistent with the expectation;
(IV) whether there is any guarantee, mortgage, pledge or other restricted transfer of the purchased assets, and whether it involves litigation, arbitration and other major disputes.
Article 33 The audit department shall conduct audit in time after the occurrence of important external guarantee matters. When auditing external guarantees, we should focus on the following contents:
(I) whether the external guarantee has performed the examination and approval procedures in accordance with relevant regulations;
(II) whether the guarantee risk is beyond the company’s tolerance, and whether the guaranteed party’s integrity record, business status and financial status are good;
(III) whether the guaranteed party provides counter guarantee and whether the counter guarantee is enforceable;
(IV) whether the independent directors express their opinions;
(V) whether to assign special personnel to continuously pay attention to the operation and financial status of the guaranteed party.
Article 34 The audit department shall conduct audit in time after the occurrence of important related party transactions. When auditing related party transactions, it shall
